* Algerian TV says AQIM commander, 40 militants killed
* French presidency declines to comment
* French military official says fighting continues (Adds comment from U.S. official, Canadian diplomat)
By Lamine Chikhi and John Irish
ALGIERS/DAKAR, Feb 28 (Reuters) - French forces have killed Abdelhamid Abou Zeid, one of the most feared commanders of al Qaeda's north Africa wing, during an operation against Islamist fighters in mountainous northern Mali, Algeria's Ennahar television said on Thursday.
Abou Zeid was among 40 militants killed three days ago in the foothills of the Adrar des Ifoghas mountains near the Algerian border, said Ennahar, which is well connected with Algeria's security services.
French and Chadian troops have been hunting fighters there after a lightning campaign to dislodge them from northern Mali.
A spokesman for France's Elysee presidential palace declined to comment. Algeria's government, Malian and Chadian officials could not confirm Abou Zeid's killing.
A U.S. official said the reports that Abou Zeid had been killed appeared to be credible and that Washington would view his death as a serious blow to al Qaeda in the Islamic Maghreb (AQIM).
A French army official, who would not comment on Abou Zeid, confirmed that about 40 Islamists had been killed in heavy fighting over the last week in the mountainous Tigargara region.
The official said 1,200 French troops, 800 Chadian soldiers and some elements of the Malian army were still in combat to the south of Tessalit in the Adrar mountain range.
Ten logistics sites and an explosives factory had been destroyed in the operation as well as 16 vehicles, she said.
France launched the assault on Jan. 11 to retake Mali's vast desert north from AQIM and other Islamist rebels after a plea from Mali's government to halt the militants' drive southward.
The intervention swiftly dislodged rebels from northern Mali's main towns and drove them back into the surrounding desert and mountains, particularly the Adrar des Ifoghas.
Abou Zeid, regarded as one of AQIM's most ruthless operators, is an Algerian former smuggler turned jihadist who is believed to be behind the kidnapping of more than 20 Westerners in the lawless Sahara over the last five years, earning AQIM tens of millions of dollars in ransom payments.
He is believed to have executed British national Edwin Dyer in 2009 and 78-year-old Frenchman, Michel Germaneau, in 2010.
FLED TIMBUKTU WITH HOSTAGES
Canadian diplomat Robert Fowler, in an account of his kidnapping by another Islamist cell in the Sahara, recounted how Abou Zeid refused to give medication to two hostages suffering from dysentery, one of whom had been stung by a scorpion.
After a loose alliance of Islamist groups seized northern Mali from April last year, Abou Zeid took control of the ancient desert trading town of Timbuktu, employing a violently extreme form of sharia, including amputations and the destruction of ancient Sufi shrines.
Timbuktu elders who dealt directly with him during the Islamist occupation described a short man with a grey beard and a quiet, severe manner who was never seen without an AK-47 rifle.
Locals said that when he fled Timbuktu, before the town fell to the French-led military advance, he took several blindfolded Western hostages in his convoy.
Born in 1965 in the Debdab region of Algeria's Illizi province, close to the Libyan border, Abou Zeid joined the Salafist Group for Preaching and Combat (GSPC) during the 1990s civil war, which later transformed itself into AQIM.
Abou Zeid is regarded by some as one of AQIM's radicals, unwilling to negotiate or make concessions, compared with the more diplomatic approach of his fellow Saharan commander Belmokhtar, the mastermind of the mass hostage taking at the In Amenas gas plant in Algeria last month.
Fowler, the Canadian diplomat who encountered them both while held hostage, told Reuters last month that Abou Zeid in person was more genial than the austere, "all-business" Belmokhtar.
The two very different men are reported to have a strong rivalry within AQIM, which some analysts have suggested was behind Belmokhtar's decision to found his own brigade last year. (Additional reporting by David Lewis and Mark Hosenball in Washington; Writing by Daniel Flynn; Editing by Louise Ireland and Paul Simao)